House panel flays pellet export duty

Calcutta, Feb. 23: The parliamentary standing committee on coal and steel has suggested the rollback of the export duty on iron ore pellets, citing breach of promise by the government.

The committee, headed by Trinamul Congress MP Kalyan Bandopadhyay, said the government should not go back on its words by imposing duty after encouraging the industry to set up plants across the country.

The revenue department, via a notification on January 27, slapped a 5 per cent export duty on pellet, an iron ore intermediate, widely used by the sponge iron industry and some integrated steel plants.

The move has got the goat of the pellet industry, which has an installed capacity of 65 million tonnes and is expanding to 85 million tonnes with a cumulative investment of Rs 35,000 crore. It was looking to make money from exports as demand for pellets in India continued to sink.

“The committee will tell the government that till technological upgradation is done in domestic steel plants so that they can fully consume the domestically produced pellets, it should continue with the earlier policy of zero per cent export duty,” the committee in its review of the iron ore export policy said.

“This should be done so that the huge investments made in the pellet industry do not become non-productive and people do not lose their livelihood because of the gradual closure of units with the additional financial burden of the increased export duty,” it said.

On November 27, 2013, the steel ministry had informed the committee that for 2012-13 the basic customs duty on capital goods for pellet and beneficiation plants was 2.5 per cent against 7.5 per cent earlier; export duty on pellets, too, had been reduced to zero.

The standing committee also received support from the commerce ministry, which in a letter written to the revenue secretary pointed out that only a small percentage of pellet production was exported. It also noted that the availability of iron ore fines for the steel industry was not constrained.

Pellet is made out of iron ore fines which is not generally used by the steel industry that prefers iron ore lumps. Pellets are mostly used by gas-based integrated steel manufacturer such as Essar and sponge iron producers. They are generally more productive than sinter (iron ore intermediary) or lumps.

Pellet exports have come down severely during the last 3 years. India exported around 2 lakh tonnes of pellets during 2011-12, nil in 2012-13 and around 3.6 lakh tonnes up to September 2013.

Public sector entity KIOCL is likely to face the brunt of the export duty most. The Mangalore-based plant with 3.5-million-tonne capacity is an export-oriented unit.